My, how you have grown!

Author: André Boße | Photo: Getty Images

Digitisation has turned tiny back-yard companies into mighty conglomerates that are distorting competition and unleashing political controversy. The call for a social market economy seems powerless against it, but it is not necessarily so

It is 1957. Ludwig Erhard holds his book, “Prosperity for all”, in his hands. The speed limit in built-up areas is reduced from 80 km/h to just 50. The Soviet Union launches the first satellite into space – and the German physicist Lorenz Hanewinkel completes the Z22, Germany’s first valve computer, a filing cabinet with wires and a memory measuring three times the number of letters in this article. To keep the machine cool, it is attached to a water supply. The Z22 was a milestone on the long road to digitisation, which is now shattering the idea of the social market economy – so much so that it would make Ludwig Erhard drop both his book and famous cigar.

Nimble, resolute, unbridled

Larry Page, Google founder

The social market economy is one of the founding myths of the post-war Federal Republic of Germany – and a compromise that Achim Wambach, an economist and President of the Centre for European Economic Research (Zentrum für Europäische Wirtschaftsordnung, ZEW), explains in the following way: “What lay behind the social market economy was the conviction that the market is the best mechanism for bringing people, products and offerings together and unleashing economic dynamism.” However, he adds, policymakers were also aware that there are some situations where the market cannot deliver but produces results that are not good for society. “For this reason, it was made subject to regulation,” he says. These restrictions include a ban on cartels to avoid the emergence of monopolies, as well as a social policy that prevents the sick, the elderly or those who have not had much luck in life from ending up in distress or extreme poverty. In short, the market is free as long as it practises self-control. The reins that hold it back will become visible only if it tries to cast them off.

In the analogue age this all worked quite well, despite all the problems and setbacks, until the beginning of the digital age around 2002. But what about the present? Are conglomerates like Amazon, Facebook, Apple and Google not one thing above all else – unbridled? They would like to be monopolists, and in some cases they have already achieved this. They are constantly growing but creating relatively few new jobs. They fiddle their taxes, react aggressively to competition and deceive their users by taking their data and not revealing what they are doing with it. As we now know, their products, software, search engines, product rankings and posts manipulate us subversively and constantly. Information, offers, prices and even emotions are controlled – before our eyes and behind our backs at the same time. This torpedoes the free market and democracy.

All forms of society can be reinvented digitally, ranging from digital fascism to digital communism and even a digital feudalism

How did it come to this? Achim Wambach attributes it to the distinctive historical feature of the digital economy. “It is a platform and data economy,” he says. Success no longer belongs to those who possess the most capital and means of production but goes to those whose platforms attract the most users and who thus obtain the most data. In addition, the tech giants operate globally and lightning-fast. They are so all-embracing and nimble that nation states’ institutions responsible for market regulation cannot keep up. “You get the impression that these companies have been able to operate for a long time in a relatively unregulated, anarchic market,” Achim Wambach says. “Everything was new, and there was no historical precedent, so they created facts on the ground without much resistance from authorities or parliaments.”

Are you happy, you lemmings?

Imagine that a German carmaker in Ludwig Erhard’s day had produced some botched cars – smelly old carts that would barely get you from A to B in one piece. How strange it would have been if consumers had protested against the shoddy quality of those cars by buying those selfsame vehicles, getting into them and driving through the town with their horns blaring! On the contrary, of course, customers would have given such cars a very wide berth.

Sergey Brin, Google founder

The platform economy of the digital world turns this natural course of events on its head. Take the example of Facebook in spring 2018. Mark Zuckerberg’s company sucks up data and secretly passes it on to insidious influencers who use the data to manipulate elections. This is, first, data theft and, second, an assault on democracy. And what do Facebook users do? They use the very same platform to protest that its practices are no longer acceptable. Some threaten to leave the community – but not without checking every hour how many likes this announcement has earned them. One of these people was the author of this very text. I soon asked myself why I was doing something so stupid.

Did I really not care about data theft and manipulation, or was I addicted? “It is certainly not true to say that people are indifferent to what happened at Facebook,” says the economist Hans Christian Müller, who wrote the book “Digitaler Wohlstand für alle” (“Digital prosperity for all”) in collaboration with Achim Wambach. “It is merely that they have no option but to stay there unless they want to give up on finding out what their close and distant friends are getting up to.”

The same applies to customers for advertising. “Where else can they reach as many young consumers as they can on Facebook?”, Müller asks. Yes, we are addicted. Or, to put it another way, many sectors of the digital economy do not possess the “democracy of the market,” an expression formulated as a premise by the pioneers of the social market economy. For instance, the influential economist Wilhelm Röpke wrote in the 1950s that the democracy of the market was the only way to “turn the consumers for whom goods are produced into the masters of production”. With an individual buying decision, every vote counts, he said. “This gives us a market democracy that surpasses the most perfect political democracy in its silent precision.”

Guarantee that decisions are made locally, and break the power of the data monopolies!

Mark Zuckerberg, CEO Facebook

“Silent” is a good word. Some time ago, Dirk Helbing dusted off the bleak classics 1984 and Fahrenheit 451. “You can read them as either warnings or instruction manuals, as you prefer,” says Helbing, Professor of Computational Social Science at ETH Zurich. As a physicist and mathematician, he is a pragmatist, who sees things like this: “It is a mistake to think that a digital society must automatically be democratic in nature.” Fundamentally, all forms of society can be reinvented digitally, ranging from digital fascism to digital communism and even a digital feudalism, where broad swathes of society surrender their freedoms to a new ruling class that secures its position through the possession of data, capital and power. “What democracy and the social market economy need, therefore, is a digital update,” Helbing says. Otherwise, there is a risk that neither will work any more – like an ancient laptop with an operating system that nobody has upgraded for years, which no longer has any idea what to do with all the new software.

Social market economy reloaded

When Angela Merkel launched the German government’s Digital Council at the end of August, Viktor Mayer-Schönberger was one of the ten experts on that committee. The lawyer is Professor of Internet Governance and Regulation at Oxford, and he set up his first software company when he was 19. He is now 52, and when he looks at the digital market, it does not actually make him despair. He describes it as “data-rich” and believes this is fundamentally a blessing for all involved. “In general, the use and analysis of data enable better decisions to be made,” he says. “This makes the market more efficient at bringing supply and demand together.” However, he notes, this is a challenge for us customers, because we have to process the mass of market information first. “We could be helped here by digital assistants that learn from the data on our behalf.” His vision is that every product and service will become transparent, with the customer able to see all the possible data, such as the CO2 footprint or the amount of water required in the production process.

The access to such data and the ability to own it, and use it to make decisions locally, is something that Mayer-Schönberger regards as the best form of market democracy. Therefore, he is convinced that digitisation has the potential to make democracy and the market stronger, both now and in the future.

If only it were not for the annoying tendency to create monopolies that control information flows and influence decisions centrally.

We shall need to continue to catch all those who fall!

Tim Cooke, CEO Apple

If we allow that to happen, we shall replace the market economy with a centrally controlled planned economy, and then the likes of Facebook, Amazon and Google will become the central institutions determining the flow of information,” Mayer-Schönberger says.

Is there a way of preventing this? Yes, Viktor Mayer-Schönberger responds. “Guarantee that decisions are made locally, and break the power of the data monopolies!” That has a militant ring to it. Does it mean breaking up the digital superstars, or even nationalising them? “No, it will be sufficient to spread the central source of their power – data – more widely,” he explains. The term he uses for this idea is “the obligation to share data”. It will oblige the big conglomerates to make the data that they have gathered available to other players. This means the conglomerates will not have any less data, but others will again have a chance to compete.

An end to work, or work without end?

But even if this could be done, other questions remain open. “Managing the boom” was the title of an important chapter in Ludwig Erhard’s book – which makes you think, “What problems they had then!” It says there: “The reality of the social market economy can… be regarded as completely fulfilled only if… genuine increases in real incomes become possible.” How will this work in the future, if a large proportion of routine jobs have been rationalised out of existence by artificial intelligence?

The authors, Hans Christian Müller and Achim Wambach, are not pessimistic about this. “Basically, we do not expect jobs to cease to exist,” they say. Machines and algorithms that perform routine tasks could give people more time. “The history of the human race shows that great ideas have always come to us when we have had time for them,” they add. That is all well and good, but what is a person to do if the reason they have a lot of time for a good idea is that their employer has made them redundant? The optimist Viktor Mayer-Schönberger again draws attention to the great potential of the wealth of data. As he puts it, work for most people still means a full-time contract with one employer – “a specific bundle of responsibilities in return for a monthly salary”. Mayer-Schönberger now demands the “unbundling” of work. “A data-rich labour market will bring supply and demand together with precision.

We shall then be working not just for one employer, but for two or three,” he says – and not because this will be the only way to make ends meet, for some sort of basic income could take care of that, “but in order to derive more pleasure out of combining work and its diversity”. But do such utopias stand a chance nowadays? Positive visions of the future seem to be overwhelmed by resentment, grievances and embitterment. Western democracies are in crisis, because increasingly large groups have a sense of being useless and worthless, both economically and culturally.

Jeff Bezos, CEO Amazon

In such a state of confusion, is a slogan such as “prosperity for all” actually feasible any more? “There is a danger of society becoming polarised,” Achim Wambach says. In one division there will be those who are able to play on, while in the other there will be those whose skills are hardly in demand anymore. “In recent decades, there has been particularly strong growth in the incomes of the well-qualified, but the rest have seen very little growth,” Wambach comments. Predominantly those in the middle are struggling. Quite a lot of people say that this section of society is gradually disappearing.

What is the solution? “We will need to continue to catch all those who fall – but, in particular, we will need to ensure that people quickly gain the necessary skills,” the author says. This means social policy, education policy and true political classics! The economic miracle of the analogue German state is history – but the strong desire to shape democracy and society so that they are free and just, so to speak, remains topical. Ludwig Erhard himself would certainly agree with that.

In the picture: The garage where Bill Gates laid the foundation for his technology empire Microsoft at the age of 19.